Market Power : 

Market power is a term used to describe the capability of a firm to increase prices by itself above market levels for a non-transitory period without losing sales to such a degree as to make this behavior unprofitable.

In determining whether a firm has market power the main factors that are considered include:

• Market Share
• Barriers to Market Entry
• Pricing Behavior
• Profitability
• Vertical Integration

Market share is measured as monetary value, units of sales, units of production and production capacity. While market share alone could be an inaccurate measure of market power, it is unlikely that a firm without significant market share will have sufficient market power to behave anti competitively on its own. Therefore, market share is an important determinant of market power.

Another factor that determined market power is barriers to entry. The level to which established producers are constrained by the prospect of new market entry is a prime factor in whether the established producers have market power.

Other factors relevant to a determination of market power are pricing and profitability. Price competition that consists of follow the leader behavior is consistent with the exercise of market power by the price leader.

The profitability of existing producers in a market also indicates the extent of true price competition. Excessive profitability usually means that there is insufficient price competition, implying the exercise of market power in fixing prices.

Vertical integration is another important factor which assesses whether a firm that enjoys market power in one market is able to extend its power into upstream or downstream markets. Operators in the telecommunications market, who are vertically integrated can use their market power in the local access market to get a competitive advantage in the long distance and international markets, and may abuse their market power, for example, by inflating local access prices and using the extra revenue to subsidize rate cuts to their competitive long distance or international services. Different economic systems have different degrees of market power.